Chapelle Appliances sells dishwashers for $ 1,200 each, which includes a 2-year warranty that requires the...

Chapelle Appliances sells dishwashers for $ 1,200 each, which includes a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2020, Chapelle sold 600 dishwashers on account. Based on experience, the company has estimated the total 2-year warranty costs at $ 40 for parts and $ 75 for labour. (Assume sales all occur at December 31, 2020.)

In 2021, Chapelle Company incurred actual warranty costs relative to 2020 dishwasher sales of $ 4,000 for parts and $ 7,500 for labour.

Required:

Using the expense warranty approach (assurance-type warranty), prepare the entries to reflect all the above transactions for 2020 and 2021.
Assume that the company uses the ‘service-type warranty approach, and estimates that the value of the 2-year warranty for the dishwasher is $150. Record all entries for 2020 and 2021. Assume any warranty expenditures are expected to be incurred evenly over the two-year warranty period.

Expert Solution

1. Using the expense warranty approach (assurance-type warranty), prepare the entries to reflect all the above transactions for 2020 and 2021.

Applies to a warranty that is part of the sales price.
The outstanding liability is measured at the cost of the economic resources needed to meet the obligation.
This assurance type warranty (Expense based approach) makes the assumption that along with the liability that is required to be recognised at the reporting date, the associated expense needs to be measured and matched with the revenues of the period.

2. Assume that the company uses the ‘service-type warranty approach, and estimates that the value of the 2-year warranty for the dishwasher is $150. Record all entries for 2020 and 2021. Assume any warranty expenditures are expected to be incurred evenly over the two-year warranty period.

Under the revenue appraoch for service-type warranties, the liability recognised is measured at the value of the service to be provided, not at its cost.
Recorded as separate performance obligation.

ekkarill92 answered 2 years ago

MoTown Appliances sells built-in ranges for $ 1,400 each. The price includes a two-year warranty. During...

MoTown Appliances sells built-in ranges for $ 1,400 each. The price includes a two-year warranty. During 2019, the company sells 1,650 ranges. On the basis of past experience, approximately 4% of units sold will require warranty replacement at an average cost of $ 450 per unit. The actual warranty costs paid by MoTown during 2019 for replacement was $ 25,000. Instructions: a) Prepare adjusting journal entries to record the estimated warranty expense and the warranty payments during 2019 at December...

Sawyer Appliances sells heaters with an embedded 1-year warranty as well as an optional 2-year extended...

Sawyer Appliances sells heaters with an embedded 1-year warranty as well as an optional 2-year extended warranty. In 2017, Sawyer sold 50 heaters with the extended warranty, which costs $10 for each heater. In 2019, Sawyer spent $75 fixing heaters under the extended warranty. Sawyer recognized the revenue on the extended warranties using the straight-line method. a. Record the sale of the extended warranties in 2017. b. Record the repairs performed under the extended warranties in 2019. c. Record the...

McKay Company sells merchandise with a one-year warranty. In Year 1, sales consisted of 1,200 units....

McKay Company sells merchandise with a one-year warranty. In Year 1, sales consisted of 1,200 units. It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in Year 1 and 70% in Year 2. In the Year 1 income statement, McKay should show warranty expense of

Amazon sells copiers that come with a 2-year warranty contract that requires them to fix any...

Amazon sells copiers that come with a 2-year warranty contract that requires them to fix any defects during the warranty period. During 2018, Amazon sells 600 copiers for $4,000 each. During 2018, Amazon spent $30,000 servicing these warranties. During 2019, Amazon spent $100,000 servicing these warranties. a) Record any necessary journal entries related to the sale of the copiers and the warranties for both 2018 and 2019. Amazon estimates that the total cost of the 2-year warranties will be $150,000....

Merritt Equipment Company sells computers for $1,260 each and also gives each customer a 2-year warranty...

Merritt Equipment Company sells computers for $1,260 each and also gives each customer a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2014, the company sold 860 computers on credit. Based on past experience, the company has estimated the per unit 2-year warranty costs as $40 for parts and $60 for labor. (Assume sales all occur at December 31, 2014.) In 2015, Merritt incurred actual warranty costs relative to 2014 computer sales...

During 2019 Canada Computer Company sold computers for $100,000 which includes a 2-year warranty. Warranties sold...

During 2019 Canada Computer Company sold computers for $100,000 which includes a 2-year warranty. Warranties sold separately for $70,000 that requires the company to perform periodic services and to replace defective parts. In 2020, Canada Computer Company incurred actual warranty costs relative to 2019 computer sales of $5,000 for parts and $12,000 for labor. Instructions (a) Using the revenue warranty approach, prepare the entries to reflect the above transactions for 2019 and 2020. assuming Canada co. earn any unearned warranties...

Cherry Wood Corporation sells blenders under a three-year warranty contract that requires it to replace defective...

Cherry Wood Corporation sells blenders under a three-year warranty contract that requires it to replace defective parts and provide necessary repair and labour. During 2019, the corporation sold 1,000 blenders for cash at a unit price of $800 each. Similar three-year warranty agreements are available separately and are estimated to have a stand-alone value of $120. On the basis of past experience, the per-unit, three-year warranty costs are estimated to be $20 for parts and $30 for labour. For simplicity,...

1) Farmers Tool Company sells lawn mowers with a 2-year service-type warranty. The warranty costs $99....

1) Farmers Tool Company sells lawn mowers with a 2-year service-type warranty. The warranty costs $99. On November 1, 2017, Farmers Tool Company sold 20 lawnmowers at $2,000 each. Ten warranties were sold. On July 14, 2018, $500 is spent on warranty costs. Prepare the journal entries related to the sale on November 1st and for the warranty costs incurred on July 14th. SHOW YOUR CALCULATIONS!!! Do not forget journal entry descriptions. 2) Diamond Corporation declared a cash dividend of...

Joe negotiates an 8-year loan which requires him to pay $1,200 per month for the first...

Joe negotiates an 8-year loan which requires him to pay $1,200 per month for the first 4 years and $1,500 per month for the remaining years. The interest rate is 13%, convertible monthly, and the first payment is due in one month. Determine the amount of the principal in the 17th payment. The answer is 420.963, but I'm not sure how to get there.

Company sells a machine for $6,800 under a 12-month warranty agreement that requires the company to...

Company sells a machine for $6,800 under a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers. With sales being made evenly throughout the year, the company sells 500 machines in 2010 (warranty expense is incurred 25% in 2010, 60% in 2011 and 15% in 2012). As a result of product testing, the company estimates that the warranty cost is $380 per machine ($200 parts...

Question